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Citigroup Lets
Investors Bail
From Old Lane

By

Jenny Strasburg

Updated May 3, 2008 12:01 a.m. ET

Old Lane,Citigroup Inc.'s
$4.5 billion hedge fund, is about to become a shadow of its former, underperforming self.

In March, Citigroup gave Old Lane's outside investors, who have claims on about $3 billion of the fund's money, permission to withdraw early as a result of changes in the fund's senior management. The biggest: Old Lane co-founder
Vikram Pandit
became Citigroup's chief executive in December.
John Havens,
another co-founder, now runs Citigroup's investment bank.

According to a securities filing made Friday, "substantially all unaffiliated investors" -- meaning those who didn't help run Old Lane or work at Citigroup -- notified the bank they wanted out. The exodus will drain about $3 billion from Old Lane, according to people familiar with the fund. Investors have to wait until July 31 to get their money back.

The fate of what is left of Old Lane, including at least $100 million belonging to Mr. Pandit, is unclear. In the filing, Citigroup said it is "evaluating alternatives for the restructuring" of Old Lane.

"Its business and its people continue to be valuable to us," Citigroup said. "We are confident that we can realize that value over time."

After paying an estimated $800 million to acquire the hedge fund and bring in its management team last year, Citigroup last month wrote down the value of Old Lane by $202 million. Mr. Pandit got $165.2 million on a pretax basis from selling Old Lane to Citigroup, according to a securities filing in March.

Amid a string of hedge-fund blowups, Old Lane's returns weren't a disaster. But there wasn't much lure for investors to stick around. The multistrategy fund's returns are about flat since its 2006 inception, according to an investor. Founders boasted early on about raising $4 billion in less than nine months but gained little momentum after that.

In September, Citigroup closed its $2 billion Tribeca Global Investments LLC with plans to market Old Lane to bank clients as the company's flagship hedge fund. Those plans were scuttled.